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Regarding the controversial topic of investor-state disputes (ISDs), part of the proposed free trade agreement (FTA) between South Korea and the U.S., Korea’s plan to exclude real estate and taxation policies from the FTA’s aegis will likely fail, sources say.

ISDs refer to cases in which investors from one nation can sue the government of another through an international mediation body if the investors suffer from damages owing to that nation’s policies.

Korean negotiators have demanded that policies related to real estate and taxation be excluded from ISDs falling under FTA regulations, but a compromise plan has been prepared due to objections from the U.S. side, according to a Korean official.

On March 12, the last day of the eighth and final round of official U.S.-S.K. FTA negotiations, a core South Korean government official said on condition of anonymity that the U.S. side had been looking for an alternative to Korea’s demands to exclude real estate and taxation policies from being regulated by the FTA.

The compromise, the official said, is that the FTA will likely state that real estate and taxation policy "may be excluded from the ISD," as opposed to earlier proposed wording which said that the two policies "shall be excluded from the ISD."

This will pave the wider way for U.S. investors to file lawsuits against South Korean real estate and tax policies, exactly what the Korean negotiation team had wanted to avoid, and a right which critics say will violate Korea’s Constitution and damage the country’s sovereignty of taxation and law, while rendering these governmental policies ineffective in the face of the demands of U.S. investors seeking profits.

Meanwhile, the two nations on March 12 held seven meetings based on sectors such as agriculture, investments, the service industry, financial services, and medical supplies, and chief delegates and heads of the seven sectors from the two sides participated in negotiations on the same day focused on reaching a final compromise on core issues.

However, there has been no final agreement on additional sectors save for competition regulations, government procurement of foreign contracts, and customs affairs. Negotiations on technical barriers to trade, environmental regulations, and e-commerce are nearly wrapped up, sources say, although complete agreement has not been reached on these issues.

In connection with the automotive, pharmaceutical, trade remedies, textiles, ISDs, and intellectual property rights sectors - all still unresolved - the two nations will hold a meeting of chief representatives in Washington starting March 19. Pending agricultural issues will be tackled by South Korean Assistant Minister for Agriculture and Trade Min Dong-seok and Richard Crowder from the United States Trade Representative (USTR) in Korea on March 19-21. The remaining issues will be discussed at a ministerial-level or a high-level official meeting in the near future.

According to Lee Hye-min, Korea’s No. 2 negotiator for the Korea-U.S. FTA, only when the two nations become flexible on the remaining issues will they be able to reach a final consensus. "From now on, all the important issues are linked," he said.

Please direct questions or comments to [englishhani@hani.co.kr]